Bonanza in the Andes

Peru's Plentiful Gold and Eager Government Draw Mining Firms, but Locals Are Feeling Left Out

CAJAMARCA, Peru — Big profits at Yanacocha, South America's largest and most lucrative gold mine, are fanning gold fever in this formerly quiet corner of the Andes, despite a plunge in gold prices over the last year that has made money-losers of many of the world's mines.

While local residents of this ancient community complain that they're not getting much of the action, gold production at Yanacocha, an open-pit mine that is majority-owned by Denver-based Newmont Gold, has shot up by a third so far this year, on top of a similar gain in 1997.

In North America, meanwhile, a dozen mines have closed and 2,000 miners have been laid off, including 500 by Newmont, as lower prices made digging a losing proposition.

Newmont keeps scraping away at these mountains not because the gold is any shinier, nor because the company prefers Cajamarca's pastoral surroundings to arid Nevada, Newmont's other base of operations. It is here because favorable geology makes gold extremely cheap to mine: about $112 per ounce, less than half the $245 industry average.

The low cost means Newmont can make lots of money even if prices drop to $279 an ounce, as they did in January, a sharp decline from $370 in early 1997. (It has since rebounded to about $300 an ounce.)

The Yanacocha operation, perched at a rainy 13,000 feet in the mountains north of here, is clearly a bonanza. And its golden halo is no secret.

Yanacocha is economical to run because the ore lies close to the surface and is extremely porous, which allows it to bond easily with the cyanide solution used in the mining process. Since Newmont and partners don't have to crush the ore before leaching, processing costs are low and recovery rates high. And labor costs are a fraction of what Newmont pays its miners in the United States.

U.S., South African and Canadian companies all have arrived in Peru after a 20-year hiatus, lured by the combination of good economics and Peru's improving political ambience. About $10 billion in mining projects is planned, several of them in this once-quiet valley that was home to Inca kings.

"South America is the largest destination for mining investment now, and Peru is the most exciting destination of all at the moment," said John Webster, partner of Price Waterhouse's Vancouver-based World Mining Group.

The world has known for centuries that the gold was here.

Cajamarca is where Spanish conquistador Francisco Pizarro captured the Inca king Atahualpa in 1533 and held him for ransom, demanding that the Inca's minions fill a room with gold to save the chief's life. The room, which is still preserved, was dutifully filled with riches--but Pizarro killed Atahualpa anyway.

In modern times, the obstacles were guerrillas and past Peruvian presidents' habit of nationalizing foreign companies. Now President Alberto Fujimori has largely subdued the revolutionaries, and his administration has opened its arms to foreign investors.

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The only discordant notes are sounded by residents of Cajamarca, a once-secluded agricultural city 30 miles from the mine. Although it is steeped in Inca and Spanish colonial history, it is rapidly losing its purely rural character and changing into a noisy, bustling mining hub, replete with strip clubs and minibus swarms.

Its residents are finding out firsthand what economists have always said about mining: It doesn't do much for the locals. Indeed, many Cajamarca businessmen and politicians complain they have been shut out of the mine's good technical jobs and lucrative service contracts because the mine's owners use outside contractors, often foreign firms. The preponderance of the mine's 1,200 jobs held by local residents are menial, they say.

The mine's general manager, Carlos Santa Cruz, said in an interview that expectations were impossibly high among local residents and that the 1,200 jobs and the $7 million in new roads, schools and other infrastructure paid for by the mine have been good overall for the community.

But residents of Cajamarca (population 180,000) complain that the main impact they see from the mine is a higher cost of living. Prices for housing, schools and staples have skyrocketed to big-city levels because highly paid foreigners can afford to pay more, City Councilman Victor Vargas said. Residents said in interviews that rents have increased tenfold in good parts of the city.

The disappointment among Cajamarcans has fueled reports, apparently unfounded, that pollution from the mine has damaged crops and affected farm animals. Mining critics such as Pablo Zevallos, an agronomy professor at National University of Cajamarca, say there has been no evidence of toxic spills or other pollution from the mine, although he too says the mine has been a huge economic disappointment to Cajamarca.

"This is not the same city it used to be," Zevallos said. "It was a quiet colonial town that now has dust, crime, prostitution and noise."